What's the outlook for ASX 200 bank shares in September?

Can investors bank on some good returns next month?

A man thinks very carefully about his money and investments.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • After the latest profit updates from banks, investors are thinking about how the big banks may perform from here
  • Major banks have been losing market share in recent times
  • The changing economic environment could be an opportunity for smaller lenders to win over borrowers

Now that reporting season is over, investors can consider the updates from S&P/ASX 200 Index (ASX: XJO) bank shares and think about how the rest of 2022 and FY23 might go.

It's currently a period of rapid transition as households, investors and businesses get used to higher interest rates.

Banks have seen a fair bit of volatility over the past three months.

Names like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group Ltd (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB) all experienced a sell-off during June. However, since then, they have recovered quite a bit of that lost ground.

What's going on with interest rates?

There are competing effects of rising interest rates.

On the one hand, higher central bank interest rates can be instantly passed on to borrowers. This gives banks a quick boost in profitability and the net interest margin (NIM). Particularly if they don't pass on the same increase to savers.

However, there are questions about what this might do to households over the long term. Will the large increase in interest rates mean that heavily indebted households won't be able to handle it? This will take time to play out there.

The Reserve Bank of Australia (RBA) has been increasing the interest rate at each of the last few monthly meetings. Another increase is expected in September.

The profitability of their current loan books is an important factor for the ASX 200 bank shares. But another element of their performance is how much lending growth they achieve.

Market share concerns

According gto The Age reporting on research by Macquarie Research and APRA, ANZ, CBA and Westpac all lost market share of the all-important housing lending market over the 12 months to July 2022. Only NAB managed to grow its market share over the year to July. It did this with an increase of less than 20 basis points (0.2%).

Smaller players are wanting to muscle in on the big four. It's not as though they're going to overtake the big four ASX 200 bank shares, but they can take market share, reduce the big banks' growth, and put pressure on the margins due to the competition.

Reporting by The Australian highlighted comments by non-bank lender Liberty Financial Group Ltd (ASX: LFG) CEO James Boyle, who said:

With interest rates going up and cost of living pressures continuing, customers are concerned about borrowing to buy homes in an environment where they're not sure where the interest rates are going to land.

They're not sure how much inflation is going to eat into their disposable income and they're not really sure exactly where house prices are going to land either. So I think there's a bit of a softening, reflecting those uncertainties in home lending.

The newspaper also noted that S&P Global Ratings thinks higher inflation and interest rates will mean tighter lending standards for banks and that "this will allow Liberty Financial to continue to grow in its niche businesses of catering to borrowers that banks typically do not service".

Foolish takeaway

ASX 200 bank shares and analysts alike think that higher central bank interest rates will mean an improved margin for banks, and analysts are generally expecting an improvement in profit in FY23.

For now, bank investors will need to factor in the RBA's next move in September and decide what this will mean for their short-term and longer-term profit outlook.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Bank building with the word bank on it.
Bank Shares

The biggest buyers and sellers of ASX 200 bank stocks revealed

Macquarie breaks down who’s been buying and who’s been selling the ASX 200 bank stocks.

Read more »

A young woman sits with her hand to her chin staring off to the side thinking about her investments.
Resources Shares

Should I switch my ASX 200 banking stocks for ASX 200 miners before earnings season?

The ASX 200 Index is dominated by Australia's bank and materials/mining sectors, which together account for around half of the…

Read more »

A man sits in contemplation on his sofa looking at his phone as though he has just heard some serious or interesting news.
Bank Shares

Here's when Westpac says the RBA will now cut interest rates

The RBA surprised everyone by keeping rates on hold last week. So, when will the next cut happen?

Read more »

Hand holding Australian dollar (AUD) bills, symbolising ex dividend day. Passive income.
Bank Shares

This is the ASX bank stock with the largest dividend yield right now

Looking to ASX bank stocks for dividend income right now?

Read more »

A man sits in deep thought with a pen held to his lips as he ponders his computer screen with a laptop open next to him on his desk in a home office environment.
Bank Shares

ASX banking sector: Is it time to consider a regional bank?

The big 4 banks are widely considered to be overvalued.

Read more »

A person leans over to whisper a secret to a colleague during a meeting.
Bank Shares

Here are the latest growth forecasts for the CBA share price

Can the bank continue rising? Here are some expert views.

Read more »

A businessman presents a company annual report in front of a group seated at a table
Bank Shares

Earnings season predictions: Macquarie weighs in on the big 4 banks

What are the broker's predictions?

Read more »

Contented looking man leans back in his chair at his desk and smiles.
Bank Shares

Major CBA investor reveals why he's all in

This investor described one major reason driving his investment in CBA shares.

Read more »